Lido DAO is a decentralized platform offering staking solutions on Ethereum, Solana, Polkadot, Polygon, and Kusama networks. However, the platform is currently facing a new lawsuit. A former LDO token investor recently brought a class action lawsuit against the DAO.
The lawsuit alleges that 64% of LDO coins are managed by venture capital firms that prevent retail investors from having independent control over trading decisions. The lawsuit was filed in San Francisco District Court on 17th December, 2023.
The lawsuit also purported that the LDO token is an unregistered security and that the DAO is responsible for causing losses based on token price changes. Investors use Lido to delegate ETH in staking pools operated by validators to earn staking rewards while reserving a derivative token called stETH that is used in other applications.
In this manner, LDO price is based on the trading interest from investors operating in the form of a decentralized autonomous organization or DAO called Lido.
Allegations Against Lido DAO
Class action lawsuit was initiated by Andrew Samuels who hails from Solano, California. The plaintiffs have named venture capital firms such as Paradigm, Dragonfly Digital Management, and Robot Ventures, and AH Capital Management as defendants in addition to Lido DAO.
The lawsuit purports that 64% of LDO token reserves are under management of founders and early investors. Such that the retail investors do not have the ability to influence the governing protocols. The lawsuit also claims that Lido started out as a partnership between various institutional firms.
However, the firm incorporated an exit opportunity and sold LDO tokens to retail investors by listing it on centralized exchanges. Once the tokens were listed Samuels and thousands of new investors purchased the token.
However, at this stage token prices declined and as per the allegations in the lawsuit caused the investors to have losses. The lawsuit has alleged that the firm is liable for leading to losses for retail investors by concentrating LDO token reserves.
Involvement of SEC in Lido DAO Class Action Lawsuit
The Lido DAO class action lawsuit has also quoted remarks from SEC chief Gary Gensler. As per the complaint documents LDO is purported to be an unregistered security on account of the involvement of a group acting as middlemen between token reserves and investors.
Furthermore, the lawsuit claimed that retail investors purchase the LDO token with the expectation of creating profits. Blockchain analytics firm, DeFiLlama, indicates that Lido has the biggest total value locked among all liquidity-staking derivatives estimated to be around $19 billion in digital currencies.
During the last bull cycle, LDO token registered a new ATH of $6.41 on 20th August, 2021. At press time, it is valued at $2.08 per unit. DAOs aim to be automated and self-governed entities by design but the concept has remained a contentious topic on account of reservations regarding its decentralization.
Recently, Bankless a digital asset media firm, has announced exit from native DAO. On this account, Bankless co-founders David Hoffman and Ryan Sean Adams have introduced a proposal to separate the two firms. The proposal was added to address criticism from investors after generating a grant request. The requisition asked the DAO for 1.82 million in ARB tokens from layer-2 scaling solution called Arbitrum.